Condo Comeback Oct 2012

85AlAskA Airlines MAgAzine october 2012

Real estate

Recovery under wayA savvy investor such as Pavlicevich can be forgiven for a bit of hyperbole. However, it is clear that she recognized what many Realtors, developers and analysts agree is a turnaround in the upscale condo-minium and townhouse market in San Francisco and many other major metropolitan areas.

Since the first three months of 2012, the long-predicted bottoming-out of home prices, at least in the specialized world of condominiums, has finally been reached, and prices are rising. The widely followed Standard & Poor’s/Case-Shiller Home Price Index of housing prices in 20 major metropolitan areas around the country found that the national composite home-price gained 1.2 per-cent for the second quarter of 2012, when compared to the second quarter of 2011. More surprisingly, the national composite price rose 6.9 percent between the first quarter of 2012 and the second quarter of this year. A strong sign of an upswing.

While Case-Shiller includes only single-family homes, the more impressive numbers can be found in condominium sales. According to data from the Northwest Multiple Listing Service, Seattle condo prices rose from a median level of $353,000 in the summer of 2011 to $400,000 in the summer of 2012, a jump of more than 13 percent.

Prices of condos and townhouses in San Diego are showing an even stronger gain, jumping 14.5 percent from July 2011 to July 2012. For the first six months of this year, the rate of single-family-home and condo sales in Denver was up more than 20 percent from the previous year—a pace The Denver Business Journal described as “breakneck.” Overall home prices were also up an average of 7 percent from July 2011.

And this growth isn’t just a West Coast phenom-enon. In Washington, D.C., shrinking inventory is also affecting prices, which rose earlier this year for the first time since 2005. In Chicago, condo prices have remained steady, but sales have been extremely strong, jumping 28.3 percent compared to a year earlier. During the same time period, overall home sales rose 22 percent.

When Vi Pavlicevich and her husband decided to

move to the San Francisco Bay Area in 2011, she ended

up right in the middle of a red-hot housing market. With a

good understanding of the overall real estate market and seeing

the high Bay Area rents as a positive economic signal, Pavlicevich

found a luxury townhouse in the new Madrone development,

located in the up-and-coming Mission Bay neighborhood.

“We couldn’t wait for the sales center to open,” she recalls, and

the couple signed a contract to buy a two-bedroom, two-bath unit

for $899,000, or about $550 a square foot. A year later, similar

units in the same development are selling for $1.2 million, or

$750 a square foot, a 36 percent increase. Pavlicevich says

San Francisco’s housing market is booming.

cu

ltu

ra

rf

/ g

ett

y i

ma

ges

Condo ComebackThe condominium market is

on the upswing across the country | By Joe Follansbee

SEEING MORE GREENIn 2012 Building Efficiencies ResultedIn a 15% Reduction of HOA Dues!!

THE SKY COLLECTIONLevels 27-38SELLING FAST!1 BD / 1 BA from $455,000 2 BD / 2 BA from $835,000

Y E S , t H E G R A S S I S G R E E N E R .Only Olive 8 offers an enviable in-city location, inspired northwest designs, a comprehensive amenities package and expansive views - all within a sustainably—built community. Better yet market prices, a HOA and preferred pricing on hotel services means that your lifestyle investment is as good for you as it is for the environment.

THE PENTHOuSESLevel 39SOLD OUT!

THE CITY HOMESLevels 18-27SOLD OUT!

MODEL HOMES OPEN DAILY 12-5 PM OR BY APPOINTMENT

737 Olive Way I Seattle, WA

Seattle’s First LEED™Silver Certified

Hotel/Condominium

7th Ave 7th Ave

Freeway Park

6th Ave 6th Ave

5th Ave 5th Ave

PACIFIC PLACESHOPS &

RESTAURANTS

WESTLAKE CENTERSHOPS &

RESTAURANTS

MACY’S

CITY CENTRESHOPS &

RESTAURANTS

WA STATECONVENTION

&TRADE CENTER

4th Ave 4th Ave

3rd Ave To Belltown STEWA

RT ST

STEWA

RT ST

8th Ave 8th Ave

9th Ave

How

ell ST

OLI

VE

WAY

PIN

E ST

PIN

E ST

PIN

E ST

PIK

E ST

PIK

E ST

PIK

E ST

UN

ION

ST

UN

ION

ST

UN

ION

ST

WESTLAKE AVE

OLI

VE

WAY

TRANSIT CENTER

Light Rail ToSeatac Airport

To Whole Foods

NORTHi-5

Monorail to Seattle Center

To South Lake UnionTo South Lake Union Street Car

M

Residential sales Office : 206.382.4820 | Olive8.com

HOtel ReseRvatiOns: 206.695.1234 | Olive8.Hyatt.com

Seller reserves the right to change product offering without notice. Each office is independently owned and operated.‘USGBC’ and related logo is a trademark owned by the U.S. Green Building Council and is used by permission.

THE HYATT AT OLIVE 8Levels 1-17Valet, Lobby Bar & Restaurant,Fitness Center, Lap Pool & Day Spa

OWNER’S LOuNGELevel 18Media Room, Billiards Room, Catering Kitchen, BBQ Terrace, Dog Run


Such growth begs the question of whether it is finally time to enter the housing market without the fear that prices will continue to decline. The answer to that question is completely dependent on location and an individual buyer’s circumstances. But experts say the rules of supply and demand are definitely pointing to a recovering market.

Patrick Veling, CEO of Real Data Strategies Inc., a real estate analysis and consulting company based in Orange County, says California’s residential inventory—the number of homes available to be sold—is enough to meet the market’s needs for about three to four months. Most experts say a five- to six-month inventory signals a balance between supply and demand. When the supply of homes is

less than what is needed to meet demand for at least six months, prices tend to rise.

Still, even with the current shortage of properties on the market, Veling is still reluctant to give a buy signal just yet.

“I would prefer to buy a little bit past the bottom and know that I’m buying on an upward trend,” he says, choosing a conservative stance.

Tim Briggs, a Realtor with Keller Williams Realty in the Palm Springs area of California, isn’t quite as reticent.

“I think things have switched from a buyer’s market to a seller’s market,” he says. “We’re seeing multiple offers on some properties, and we’re selling more than last year.”

The increasingly popular option of condo-

minium or townhouse living is certainly

different than living in a traditional single-

family home on a tree-lined street. Buying a

condo requires that you share a structure

with, possibly, several hundred people, all of

whom have financial responsibility for mainte-

nance of common services and areas, such as

heating systems, elevators and landscaping.

Typically, all you own is the space between the

walls—not even the walls themselves.

As with all real estate, the value and

prospects for appreciation are dependent on

the region, health of the local economy, avail-

able inventory and local demand.

Dean Jones, principal at Seattle’s Realog-

ics Sotheby’s International Realty, refers to

these as “microclimates,” similar to the varying

meteorological microclimates in the valleys of

a mountain range.

“Study the microclimate,” he says. “You

need to become an expert of these areas and

look for opportunities.”

Here is some general advice for beginning

condo buyers on things to keep in mind: Take time to study the local market: Are

new condo buildings under construction?

How old are the current buildings? Were

some condos converted from apartments in

recent years? A converted property could

affect your ability to get a mortgage, because

some lenders are wary of lending for condos

in buildings with high rental activity.

Find an experienced agent: Condos and

townhouses are unique legal entities and

require expert assistance. A simple difference

between condos and single-family homes, for

example, is land ownership. A homeowner

holds the land as well as the structures, while

the condo owner may own the land in com-

mon with his or her immediate neighbors. You

may even need to consult a real estate attor-

ney to fully understand your rights and

responsibilities as a “co-owner” in a specific

condominium building.

Visit the building: You can always visit the

common areas of a building, though you may

need permission to go much farther than the

lobby. If the building is under construction,

visit the sales center, typically nearby. The

sales center will usally have a model unit that

gives you a sense of what the units would

offer. You’ll also find floor plans and even a

scale model of the entire building, which

would show you how the building fits into the

neighborhood.

Read the association covenants: Most

buildings have a homeowners association, or

HOA, which makes and enforces the common

rules of the building, called covenants. This

document, which you sign, covers everything

from acceptable noise levels to renting out

your unit.

For example, the covenants may limit the

kinds of business activity you can conduct in

the building; the HOA may not want clients or

customers traipsing in and out of your unit at

all hours. Ask yourself if you can live with the

covenants’ restrictions.

Ask questions about fees: Make sure you

understand what the fees cover and how

often the association board is elected or

chosen. Find out if the association levied any

special fees for projects not covered by regu-

lar dues. The minutes from association meet-

ings can also hint at its responsiveness to

building problems and the status of ongoing

legal disputes, if any.

Regular association fees cover routine

maintenance of the building and the ameni-

ties, such as the pool or gym, and the salaries

of doormen, custodians and other workers.

Fees range widely, anywhere from $100 to

$1,000 a month, with the highest fees in

luxury buildings.

Talk to a resident: Exercise your networking

skills by finding people who live in the building

or at least in the same neighborhood. They can

give you the inside scoop on what the neigh-

borhood and building are really like. —J.F.

Pointers for finding the right condominium or townhouse Choosing Wisely

90 AlAskA Airlines MAgAzineoctober 2012

Even with the renewed activity in real estate, the housing market still has a long way to go before it’s back to the heady days of 2007. In Seattle, for example, developers delivered 2,975 condos in the three-year period from 2007 to 2009. That was an increase of more than 600 percent from the 471 condos delivered between 2004 and 2006. Then the Great Recession hit, throwing cold water on the overheated market. Banks stopped lending even to qualified buyers. And without buyers, home prices plunged.

A number of projects completed during this time experienced the effects of the economic downturn. That included Seat-tle’s Olive 8, a 229-unit luxury condomin-ium high-rise completed in 2006 that is perched above a Hyatt Hotel.

As the economy declined, prices for condominiums in the development fell below 2007 levels. However, Olive 8’s development company, R.C. Hedreen, has seen the market pick up recently and expects to sell the remaining units of the building still on the market by the summer of 2013.

“I don’t think anyone could’ve predicted what happened,” says David Thyer, presi-dent of R.C. Hedreen, concerning the extent of the recession.

Positive signsThe recovery process included having construction slow to a virtual halt while excess inventory was sold off.

Now that prices have come down and inventory has been reduced, demand has also perked up, with bargain hunters seek-ing to buy in the West’s urban centers.

Seattle remains a prime example. By 2011, construction of condos had all but stopped, something that hadn’t happened since at least the 1990s. In addition, devel-opers converted some of their inventory to apartments as consumers turned to renting instead of buying.

This loss of inventory has resulted in the stabilizing and, in some cases, increas-ing of unit prices.

The economic recovery under way in many West Coast markets is also helping to create increasing demand and dropping


supply. The Seattle area’s preliminary unemployment rate in July 2012 was 7.5 percent, down from 8.9 percent a year earlier, and about 0.8 percent below the national July unemployment rate.

Add in plans by Amazon.com to build 3.3 million square feet of office space—described by The Seattle Times as down-town’s “largest project ever”—and you have the makings of what some analysts have described as a potential housing shortage, at least in Seattle’s downtown core.

The Bay Area is experiencing a similar trend as technology companies, such as Twitter and Yelp, have set up offices in San Francisco proper, often as an alternative to Silicon Valley. According to one report, a condo in the Mission District sold this year for a record $900 per square foot.

However, prospective buyers have to be careful when picking their markets. The recovery in condos, and in the housing market, as a whole, remains spotty, with different areas recovering at varying rates.

Glenn Crellin, director of the Runstad Center for Real Estate Studies at the Uni-versity of Washington says home prices away from Seattle’s urban core are as much as 50 percent below their pre-recession highs, and a large percentage of owners are under water.

“There’s still a lot of foreclosures in the market,” he adds.

The Chicago Association of Realtors is also cautious, maintaining that the market has not yet turned a corner. However, many individual agents remain bullish. Darya Lisserman has worked in the Chi-cago real estate market for more than a dozen years.

She says local rents have reached the point where buying is cost-effective, and interest rates—historically low during the downturn—are compelling anxious buyers to look hard at financing. She also says the economy is doing better, and that is spur-ring new interest.

“In downtown, restaurants are packed,” she says. “Single people are still employed, and they’re spending. There’s a lot of [unmet] demand from people who were waiting for the bottom and are now in the market to buy.”

Contact us at 1.800.426.3113northlandservices.com

Challenging shipments?Northland delivers.

Seattle to Hawaii: A project of enormous scopeWhen Harvard-Smithsonian Astrophysical Observatory needed to ship

large radio telescope components to the Big Island of Hawaii, they chose

Northland’s Aloha Cargo Transport. Why? Smooth sailing for delicate

oversized equipment. From Hilo to Honolulu, Kawaihae to Kahului, ACT

is the way cargo moves from the Pacific Northwest to Hawaii. Sailboats,

machinery, building materials,

you name it, ACT delivers.


Changing clienteleIndustry watchers are also noticing a sub-tle shift in the types of buyers coming to sales centers. They are seeing fewer so-called “empty-nesters” and investors, and more couples looking to live in the urban scene.

A few years before the housing bubble popped, some older couples whose chil-dren had moved out downsized by taking the equity from their suburban single-family homes and purchasing a condo in a downtown high-rise. That ended when housing values plummeted and many families lost much of their equity in their suburban homes.

“That’s been a problem for the last three years,” says Thyer of the inability of subur-ban homeowners to sell their homes.

However, a new sign of the market’s strength is the recent return of people buying condos as an investment in hopes of selling them at higher prices in the future.

“This phenomenon has turned the corner, and investors are returning to the condo market,” Thyer says.

What hasn’t changed is the young single professional or the young working couple interested in living in the city. Seattle’s Amazon.com development will likely draw hundreds, if not thousands, of new residents to downtown.

Still, not every new buyer fits the ste-reotype. Robert Roblin, 59, moved into an Olive 8 condo in June. Describing himself as “an old entrepreneur,” in contrast to his generally younger neighbors, the CEO of Bellevue startup Ratify began his career in the San Francisco Bay Area and lived in New York for six years before moving to Seattle.

“I wanted to be in a vibrant urban neighborhood,” he says, “and I was astounded by the Seattle environment.”

He has found that the Emerald City has much in common with New York and San Francisco: He can walk from home to a downtown transit center, ride the bus to Bellevue, and walk to his office. No car is necessary. Everything is near at hand. He says Seattle offers a better deal than many bigger cities.

12PSH014F Pacifi cSource Health Plans “Individual” Ad forAlaska Air and Horizon Air Magazines

Color, (2/3 pg vert.) 4.8125”wide x 9.875”tall Insertion Order #50633October 2012 issue

DVA Advertising and Public Relations 541-389-2411 Dan O’Neil: [email protected]


“Prices in this area are still reasonable, and the value per square foot is high com-pared to Manhattan,” Roblin says.

Brighter futureAs always, the question remains whether this turnaround will last. The law of supply and demand holds the key. Little new inventory is in the pipeline, as developers continue to recover from the recent reces-sion, and banks are still reluctant to loan for construction.

One of the few developers in the West that is moving forward on a project is Bosa Development of Vancouver, B.C., whose portfolio includes residential high-rises in Seattle, San Francisco and San Diego. Dennis Serraglio, director of sales and marketing, says his company is working with several lenders to build the first tower of the 643-unit Insignia project in Seattle’s South Lake Union neighborhood. The project broke ground in June after a five-year delay. “Banks are pushing back when we talk about financing, but we have good relationships with them,” he says.

Another sign that condo prices have likely hit bottom is the number of condos that have been converted to apartments, essentially reducing supply. In downtown Seattle, 777 units in four buildings origi-nally developed as condos were switched to apartments in 2008 and 2009 as renting became more financially sensible than buying. But many of those units will prob-ably not be switched back to condos.

According to Dean Jones, the principal at Seattle’s Realogics Sotheby’s Interna-tional Realty, three of the four buildings were sold to real estate investment trusts (REITs), entities that make long-term investments in real estate. However, REITs generally don’t convert apartment proper-ties to condos, Jones noted, preferring to manage them as they found them. In short, converted condos stay converted, keeping condo inventory down.

Furthermore, buying and renting have switched places in economic terms since the beginning of the recession. Jones notes that market data shows that in September 2007, near the peak of the housing bubble, the average monthly condo mortgage pay-

P.O. BOX 717 LA CONNER, WASHINGTON 98257 360/466-4416BUYING • SELLING • BY APPOINTMENT

FINE OLD AMERICAN [email protected]

"MT. MCKINLEY, ALASKA” 20" X 15" OIL/CANvAS

SYDNEY LAURENCE1865-1940

Licensed in 17 states with offices in Arizona, California, Colorado, Nevada, Texas, Oklahoma, Oregon, and Washington.

www.cobaltmortgage.com877.220.4663

© 2012 Cobalt Mortgage, Inc., 11255 Kirkland Way, Suite 100, Kirkland, WA 98033. Toll Free: (877) 220-4663; Fax: (425) 605-3199. NMLS Unique Identifier: 35653. Arizona Mortgage Banker License #0909801. Licensed by the Department of Corporations under the California Residential Mortgage Lending Act #4130455. Licensed by the Colorado Department of Regulatory Agencies in Colorado state. Idaho Mortgage Broker/Lender License #MBL-5220. Indiana Mortgage Lending License #17900. Kentucky Mortgage Company License #MC82026. Montana Mortgage Lender License #35653. Nevada Mortgage Banker #3723, Nevada Mortgage Broker #3725. New Mexico Mortgage Loan Company License #03587. Ohio Mortgage Broker Act Mortgage Banker Exemption MBMB.850154.000. Oklahoma Mortgage Broker License #MB002202. Oregon Mortgage Lender License #ML-2991. Texas SML Mortgage Banker Registration. Utah-DRE #8220471. Washington Consumer Loan License #520-CL-48866. West Virginia Mortgage Lender License #ML-31617. Wyoming Mortgage Lender/Broker License #2315. Ticket #2012082310000553


ment in the Seattle area was about $1,700. Average apartment rents at that time hov-ered around $1,200 a month. In September 2011 (the latest figures available), the aver-age monthly mortgage payment was about $850, while rents stood at about $1,300.

“For many segments of the market, the fact that condo prices have corrected, coupled with the lower [interest] rates, have increased affordability while the cost of rental alternatives has skyrocketed,” Jones says.

The high rents and lack of construction financing for condos have also encouraged developers to build apartments at a rapid pace. A March 2012 survey by Bloomberg News found that spending on apartment construction jumped 24 percent compared to a year earlier.

Seattle has found itself a leader in the apartment boom. According to the Down-town Seattle Association, a Seattle busi-ness advocacy group, more than 4,500 apartments were permitted, under con-struction or recently completed, as of June 2012. Another report puts the number of apartments in the Seattle pipeline at 7,000. There has even been speculation that Seattle may be facing an apartment con-struction bubble. In contrast, just 335 condo units are in the pipeline for Seattle.

Jones isn’t sure just yet what the flood of new apartments will mean for Seattle’s condominium market. The new construc-tion may stabilize rents or actually force them to fall while the apartments are absorbed by the market. However, he says, the influx of more people to the downtown area should, in the long run, help spur condominium sales.

“All population growth helps to support and expand the residential services and lifestyle offerings downtown, which help generate demand to live in the city,” Jones says of the coming wave of apartment dwellers. “While many will prefer to lease upon relocating, a sizable percentage will ultimately choose to set roots and may be candidates to buy a condo when they are ready to move up.”

Joe Follansbee is a Seattle-based freelance writer.

Documents

Condo Comeback Oct 2012